Why Big Banks Don't Want Your Money Anyway

With the recent backlash surrounding the banking industry, more consumers are
becoming increasingly vocal about the poor service, high fees and
dismal interest rates offered by the nation’s biggest banks and
demanding justice.

Usually, when enough customers complain about a business, that
business is inclined to make a change and regain the trust
they’ve lost. It follows then, that if you’re dissatisfied by
your bank, you should make your voice heard and request action.
Unfortunately, big banks probably aren’t going to do
much changing anytime soon, because frankly, they don’t want your
business.

Big Banks Don’t Want Your Money

One of the major reasons banks aren’t interested in gaining new
business is because most depositors are unprofitable.

One would assume that, considering lending out customers’
deposits is one of the major ways banks make money, the more cash
sitting in bank accounts, the better. The truth,
however, is that most big banks have
more money on deposit than they know what to do with.

Bloomberg reported in December 2012 that
deposits at U.S. banks exceeded loans by an “unprecedented” $2
trillion. In fact, deposits have increased by 29 percent since
September 2008, while loans have experienced growth of less than
2 percent over the same time period.

Additionally, Bloomberg
reported the banking industry was lending 78 cents for every $1
in deposits at of the end of last year, well below the mid-90
percent range the Royal Bank of Canada’s Gerard Cassidy states is
ideal.

Ron Sellers of Grey Matter Research & Consulting
explains, “Consumers don’t understand the finances of banking.
They often say, ‘Well, you’re using my money, so you’re making
money off me.’ What they don’t recognize is that servicing that
account costs money.”

Those costs, says Sellers, include processing every
transaction; producing and sending statements; and maintaining
branches, ATMs and phone
service centers. Plus, banks also have to keep a portion of
deposits on reserve at all times.

Therefore, it’s likely you are costing your bank more than you’re
contributing to its bottom line — so it’s no wonder they aren’t
going out of their way to make you happy. In fact, your bank
might actually be trying to drive you away.

What Does a Profitable Bank Customer Look Like?

Alexey Bulankov, CFP, told me that a few years ago, he worked for
the investment arm of a well-known bank as an investment
consultant. The bank’s management decided to have branch managers
compile a list of its most profitable accounts — defined as
bringing in the highest percent of revenue per dollar of deposit.

“I was quite surprised when I saw the list,” says Bulankov. “It
was compiled almost entirely of the low-balance accounts — under
a $100 — which had low balances, high overdrafts and were
systematically overdrawn, late or had a bunch of bounced checks,”
he explains.

This was prior to the passing of the Dodd-Frank financial reform
law, however, which in part limited the bank fees institutions
could charge customers. Reuters cited Todd Maclin, head of
consumer and business banking at JPMorgan Chase & Co, as
explaining that people who couldn’t bring at least $100,000 in
investable assets, loans and deposits to their banks would be
largely unprofitable once Dodd-Frank passed.

Driving Away Unwanted Bank Customers

It’s important to remember that banks are, in fact, businesses,
so their number one driving objective is to turn a profit.
Today, bank fees make up a much
smaller percentage of overall banking industry revenue. Financial
institutions are using bank fees to drive away those customers
who were once the most profitable, but now cost banks more than
they’re worth to keep.

“In my experience, I was told by my management to manage out my
highest loss ‘D’ households,” says Gregory B. Meyer,
Community Relations Manager, Meriwest Credit Union. “In other
words, find ways to encourage these customers to take their
unprofitable business elsewhere. In business reviews, my boss
would look at the lowest of the D households and directly ask me,
‘Why are these households still here?’”

Credit Unions Welcome the Business

Meyer explained that credit unions, on the other hand, have a
very different perspective regarding customers. As not-for-profit
institutions, their priorities aren’t driven by revenue.

“I think this is why, every year, credit unions tend to grow the
number of households they service,” advises Meyers, adding, “A
while back, Bank Transfer Day was a big
day when families with bank checking accounts were encouraged to
move to a credit union… Since then, every day our credit union is
open is Bank Transfer Day.”

For the average person with a modest-size bank account, a
symbiotic relationship with big banks is probably not possible.
Even so, there are plenty of credit unions out there that would
be more than happy to have you.